‘Widespread failure’ on adviser reference checks

ASIC has threatened to publicly ‘name and shame’ financial institutions that fail to conduct proper background checks on their financial advisers.

The financial services regulator released its report Financial advice: Review of how large institutions oversee their advisers on Friday.

The report looked into the conduct of the financial advice licensees controlled or owned by AMP, ANZ, CBA, NAB and Westpac.

ASIC examined the way licensees identified and dealt with non-compliant conduct by their financial advisers between 1 January 2009 and 30 June 2015.

It also focused on the background and reference-checking processes of financial advice licensees – as well as the willingness of licensees to provide information about their former advisers.

The shortcomings of the advice industry when it comes to background checks is a "longstanding concern for ASIC", said the report.

"We have observed that advisers whose past conduct has been identified as non-compliant sometimes circulate undetected within the financial advice industry."

Commenting on the findings of the report, ASIC deputy chairman Peter Kell said there is a "sense of very deep frustration" both at the point of checking the compliance record of a new adviser as well as the provision of a reference by an adviser's former licensee.

"We will start to publicly name and shame firms that fail with their reference checking and reference provision. They have to take some responsibility here," Mr Kell said.

"The regulator can't hold their hands every step of the way. And if being outed for being extremely poor on this front [is what is required], well that's what we'll need to do."

Mr Kell acknowledged the Australian Bankers' Association's (ABA's) Financial Advice – Recruitment and Termination information sharing protocol that has been subscribed to by the major licensees.

"Hopefully the ABA's new protocol will represent a game-changer. We'll see. But if it doesn't, then it's not going to be something that we can tolerate going forward," Mr Kell said.

The speed with which licensees inform ASIC about adviser compliance concerns via 'breach reports' was also a focus of the latest report.

It found that just under half of 'serious compliance concern' (SCC) advisers were not the subject of a breach report to ASIC.

Of the 149 SCC advisers uncovered by ASIC as part of the project, 73 were not reported to ASIC until it formally requested information as part of the project.

Breach reports must be lodged with ASIC 'as soon as practicable' and no later than 10 business days after the licensee becomes aware of a breach, or a likely breach.

However, the report found there are "considerable delays" when it comes to breach reporting. In one example, an institution acknowledged that 179 days had passed from when it first became aware of non-compliance to the lodgement of a breach report with ASIC.